Crypto: Proprietary Injunctions Over Bitcoin
The profile of crypto currencies and crypto assets continues to rise, but legal certainty in relation to their legal status is vital for the business community. This means any development clarifying the law’s treatment of Bitcoin and its crypto cousins is to be noted.
The recent High Court ruling in AA v Persons Unknown is particularly noteworthy as it’s likely the first ruling to be handed down since a formal statement concerning crypto assets was made by the UK Jurisdiction Taskforce of the Lawtech Delivery Panel last November.
What’s the background?
As we wrote last Autumn, the Panel issued an important statement that crypto assets “have all of the indicia of property and are, therefore, to be treated as property” even though they are virtual and cannot be “physically possessed”. Panel head, Chancellor of the High Court Sir Geoffrey Vos, said the intention of the statement was to provide market confidence, legal certainty and predictability though he did concede that it would have far-reaching consequences in some cases.
And it was following this statement that the High Court granted a proprietary injunction in favour of an (anonymous) insurance company over Bitcoin.
The events leading to the case involved the hacking of the insured (also an insurance company) by a hacker who infiltrated and bypassed its firewall and installed BitPaymer malware. As a result, its computer systems were all encrypted and notes were left on the encrypted system demanding a ransom payment in Bitcoin (worth $1.2m)
The ransom was paid and, using experts, it was possible to track the Bitcoins that had been transferred. The insurance company made applications for (among other things) injunctions in respect of the Bitcoin transferred. As the court pointed out, the application raised “novel legal issues” relating to crypto currencies.
It’s starting point, based on existing authorities, was the “difficulty in treating Bitcoins and other crypto currencies as a form of property: they are neither chose in possession nor are they chose in action”. So they could not be classified as a form of property, which would prevent them being the subject of a proprietary injunction or a freezing injunction.
However, the court noted that though the Panel’s legal statement is not a statement of the law, it was “a detailed and careful consideration”. Further, its analysis around the proprietary status of crypto currencies was compelling and should be adopted by the court.
On the basis, it ruled that Bitcoin is to be regarded as property (being definable, identifiable by third parties, capable in their nature of assumption by third parties, and having some degree of permanence). Therefore, crypto currencies are a form of property capable of being the subject of a proprietary injunction; and injunctions were therefore made against all the defendants in the case.
What does this mean?
It now appears settled law that Bitcoin and other crypto currencies are property for legal purposes, giving long-awaiting clarity for businesses, investors and individuals using it in the course of business or for payment. It means remedies are available should a dispute arise.
Cyber criminals considering hacking a company’s computer systems for the purposes of demanding ransoms in the form of crypto currency can now expect to be the subject of a growing number of injunctions. And that can only be a good thing.
1AA v Persons Unknown [2019] EWHC 3556
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